“The greatest difficulty in the world is not for people to accept new ideas, but to make them forget about old ideas.”
I often think of this quote by John Maynard Keynes when portfolio companies approach me for guidance around doing deals with large corporate clients. The success and failure of most enterprise-focused startups rests on the team's ability to secure their first big, institutional win and then leverage it into sales to other similar organizations.
Yet, complicated dealmaking psychology and deeply ingrained historical ways of doing things inside enterprises make it really tough for startups to break in and stay in. So, if you're a founder who finds this particularly challenging, you're not alone.
Understanding a large organization's structure and corporate decision-making behaviors is difficult. I spent nearly two decades negotiating external and internal deals on Wall Street, before I became a full-time early-stage investor. I'm deeply familiar with the specific psychology of enterprise dealmaking in financial services, which is a notoriously difficult industry to sell to.
Interestingly, the principles I found effective in my past life to get deals over the line very much apply to startup founders pitching to large financial firms and other Goliaths. It comes down to knowing your audience, accepting the ever-shifting ground beneath your feet, and setting up terms that anticipate success.
Get clear on the role of the innovation team
If you're a founder trying to win a large bank or an asset management firm as a client, your first job is simply to establish a foothold at the company. Some industry insiders turned entrepreneurs have a deep Rolodex of senior leaders in their target segment. If that is the case for you, by all means, leverage those contacts as far as they can take you. Otherwise, which team is your best point of entry? The short answer is, it depends.
As you might expect, my portfolio companies and I have found that the corporate innovation team is often a friendly way in, particularly for startups offering cross-functional tools, like middleware used and shared by multiple teams, or other solutions geared toward general employee productivity.
Boston, MA July 15
However, heavy fintech startups typically sell products that tackle business challenges of very specific divisions inside large financial services companies and, thus, may benefit from an alternate approach. For instance, if you're selling risk management analytics for the front office, you would most likely start with traders and portfolio managers as beta users and turn them into vocal product champions versus routing your pitch through the innovation team.
Over time, though, it is valuable to cultivate relationships with multiple decision-makers and influencers across the firm — and the innovation or “fintech partnership” group can be a great source of internal introductions, including those at the executive level.
Accept the inevitability of the reorg
Teams inside financial services companies are assembled and disassembled often over the course of four quarters, and senior heads roll regularly, mostly due to internal politics and not necessarily long-term business rationale. Short tenures create short-term thinking, which makes it hard for a startup to keep their internal sponsor long enough to complete the objectively extensive procurement process. Talent decisions frequently come from the top, and each new management team takes time to evaluate the business they inherit, which can mean significant delays for the startup trying to sign a deal.
The new leadership, feeling pressure to justify their appointment, may also make a mark by changing priorities altogether; this will likely mean a complete deal loss for said startup. But before you let team changes in the business unit you've been pitching throw you off your game, know that it’s simply the nature of the industry to have a reorg every couple of years, and you can prepare for it by broadening your relationships within the organization.
Also, be extra conservative in your capital planning: Assume you will have much longer sales cycles than you hope, and don't balloon your burn by overhiring in anticipation of a big deal. This is true for selling to many kinds of Goliath enterprises, not just finserv ones. Unfortunately, I have seen executive changes delay and derail contracts for plenty of startups targeting retail, chemicals, logistics, healthcare and other industries where the enterprise sale is similarly complex.
Secure a pilot contract with a built-in extension
Wherever possible, make sure that contracts ensure that a successful pilot initiates a built-in extension of work. That way, you don't have to track down your sponsors and renegotiate, because as we've learned, those sponsors may no longer have the capability to greenlight the deal. This may take the form of an annual contract with a brief discounted period upfront that automatically transitions to full price and scope upon successful trial period completion. If you have a strong contract in place, with clear pilot success metrics, it should ideally upgrade itself beyond the test period.
Never assume that you’ve landed the deal
Even if you've signed a contract, you'll find that traditional financial services companies can be finicky. Any financial Goliath will have not only multiple stakeholders but also shifting regulatory considerations and business priorities that drive projects and headcount decisions on a continuous basis.
Much of this holds true for enterprises in other industries as well, even if the specific drivers of change may be different. Therefore, your solution will need more than one internal sponsor to ensure relationship continuity and, preferably, contract expansion come renewal time.
As you learn the organization and its quirks, you'll need to gather more executive backers while building a strong customer support team within your startup. The customer success function is key not only to keeping your existing users happy and informed of product enhancements, but also to your company's ability to never lose track of what may be changing in the client organization. Remember: The deal is never static, and you're always selling.
The enterprise sales process is clearly difficult to navigate. Managers face minimal consequences for moving around, but startups, particularly in early stages, can suffer existential consequences from the delay that causes for their business.
In a landscape where old ideas loom large, startups must maintain acute awareness of often short-term corporate psychology, embracing adaptability and nurturing internal champions. Point of contact got reassigned to a new group? Yep, we prepared for that. Innovation team doesn't have budget? That's okay, we're also working with another division. What happens at the end of the pilot? We anticipated this; it's built into our contract.
Understanding corporate psychology alone won't help you close a deal. But coupled with a proactive strategy for gathering intelligence, and a commitment to acting swiftly, it will put you well ahead of other startups vying for the same clients.